Semiconductor downcycle continues with big changes in Top 10 chip company rankings

The semiconductor down cycle that started in the second half of 2022 is still showing no signs of recovery. Earlier S&P Global released its latest supply chain report saying that global demand for semiconductors is still low and recovery will not be seen until later this year.SIA's Q1 2023 report, as well as Omdia's latest research, both confirm this statement ......

The semiconductor down cycle that started in the second half of 2022 still shows no signs of recovery. Earlier S&P Global Market Intelligence (S&P Global) (hereinafter referred to as "S&P Global") released the latest supply chain report that global demand for semiconductors is still low, and the recovery will not be until later this year.

Q1 global semiconductor sales decline in all regions, China the most

The Semiconductor Industry Association (SIA) report for the first quarter of 2023 corroborates this statement, with global semiconductor sales totalling $119.5bn in 2023Q1, a decline of 8.7 per cent compared to the fourth quarter of 2022, and a decline of 21.3 per cent compared to the first quarter of 2022. Compared to February 2023, March sales increased by 0.3%.

From a regional perspective, in March, Europe, Asia-Pacific / all other regions and China's semiconductor sales to achieve year-on-year growth, growth rate of 2.7%, 2.6%, 1.2%, but Japan and the Americas, semiconductor sales declined, growth rate of -1.1% , -3.5%. Semiconductor sales in Europe, Japan, the Americas, Asia-Pacific/all other countries and China (-34.1%) declined year-on-year, with growth rates of -0.7%, -1.3%, -16.4%, -22.2%, and -34.1%, respectively.

?"Global semiconductor sales continued to decline in the first quarter of 2023 due to market cyclicality and macroeconomic headwinds, but monthly sales rose in March for the first time in nearly a year, providing optimism for a rebound in the months ahead," said John Neuffer, SIA's president and CEO.

According to the SIA published figures show that in February this year, Japan's semiconductor sales grew slightly year-on-year to 1.2%, but Europe, the Americas, Asia-Pacific / all other regions and China have declined to varying degrees, the growth rate of -0.9%, -14.8%, -22.1%, -34.2%, respectively. Monthly sales declined in Europe, Japan, Asia/Pacific/All Other, Americas and China, with growth rates of -0.3%, -0.3%, -3.6%, -5.3% and -5.9%, respectively.

Consumer share declined, automotive and industrial rose

In addition, according to the 2022 semiconductor sales data by broad product categories (called "end-use"), the PC/computer and communications terminal markets accounted for about two-thirds of total semiconductor sales, while the other markets are mainly automotive, industrial, and consumer electronics, etc. However, according to the World Semiconductor Trade Statistics (WSTS), the share of the consumer market declined by -3.6%, -5.3%, and -5.9% respectively.

However, according to the results of the Semiconductor End-Use Survey organised by the World Semiconductor Trade Statistics (WSTS), the semiconductor end-use market sales in 2022 have changed significantly. While the PC/computer and communications end markets still account for the largest share of semiconductor sales in 2022, the lead has narrowed. Meanwhile, automotive and industrial applications saw the largest growth of the year. In addition, a McKinsey analysis shows that automotive and industrial applications will account for 14 per cent and 12 per cent, respectively, of the average growth in chip sales through 2030, driving demand growth in this decade.

Memory and microprocessors are the hardest hit by the decline

In its latest study, Omdia also reveals that the semiconductor market is in its fifth consecutive quarter of declining returns from the first quarter of 2023. This is the longest period of decline since Omdia began tracking the semiconductor market in 2002. Earnings in the first quarter of 2023 were $120.5 billion, down 9 per cent from the fourth quarter of 2022. The semiconductor market is cyclical in nature, with increased demand for semiconductors driven by the global New Crown epidemic, which reached record earnings in every quarter from the fourth quarter of 2020 to the fourth quarter of 2021, but has continued to decline since then.

The memory and microprocessor (MPU) markets are the main areas contributing to the decline in the semiconductor market. The MPU market was $13.1bn in Q1 2023, just 65% of Q1 2022 ($20bn). The memory market fared worse, at $19.3 billion in the first quarter of 2023, just 44 per cent of the first quarter of 2022 ($43.6 billion.) The MPU and memory markets were down a combined 19 per cent in the first quarter of 2023 and 9 per cent sequentially.

Commenting on Omdia's latest analysis, Cliff Leimbach, Senior Analyst, said: "The semiconductor market has been plagued by a lack of demand that has persisted for many quarters, which in turn has led to a decline in the average selling price (ASP) of many components. However, there is still demand in the semiconductor market due to generative AI. NVIDIA's (NVIDIA) revenue growth is strong due to its leadership in generative AI, reversing the performance decline faced by most semiconductor companies from 2023, but other semiconductor companies have yet to capitalise on this area in a similar way."

The memory market has been trending downward for the last 3 quarters, so the market share rankings have changed. A year ago, 3 of the top 5 semiconductor companies in terms of revenue were memory companies: Samsung, SK Hynix and Micron. Currently only Samsung remains in the top ten. SK Hynix and Micron last failed to rank in the top ten in 2008, which shows the memory-focused semiconductor companies are facing difficulties.

NVIDIA announced its financial results after the CLT report, which greatly exceeded expectations as generative AI continues to be hot, driving strong demand for AI chips.

Infineon's (Infineon) strong presence in the automotive chip space saw it squeeze into the top 10 by ringing up 11 per cent this year.

When does it bottom out? Leading companies see it this way

In its report, S&P Global cites forward-looking comments from eight industry-leading companies, including Apple Inc. These industry leaders believe that demand for semiconductors is still declining and that performance will be difficult to improve in the near term. However, some companies believe that by the third quarter or the end of the year, the situation should be able to show improvement.

Qualcomm reported a 17% drop in production for the three months to 26 March 2023, and expects a further decline due to "weak global handset sales and channel inventory declines". For the full year, Qualcomm expects global smartphone sales to decline "by a single-digit percentage," and that "single-digit" number could be larger.

NXP Semiconductors N.V. expects its revenue for the second quarter of 2023 to be "down about 3 per cent compared to the same period last year," due to growth in automotive demand but declines elsewhere. That means "the severe shortfalls we have experienced over the past two years should subside as we progress through the end of the year."

AMD expects its revenue to fall 9 per cent year-on-year in the first quarter of 2023 before accelerating to 19 per cent in the second quarter due to weak demand for personal computers. The company has been looking to "normalise inventory in the supply chain ...... This will happen in the second half of this year."

Infineon's expectation is that "improvements in consumer markets such as smartphones, PCs and home appliances are not yet evident", although revenue growth in the automotive and green industrial power segments is expected to "increase slightly".

US speciality chemicals supplier Avantor reported a 9% drop in revenue in the first quarter of 2023, which included "weak demand for formulated solutions from our semiconductor customers". The company expects full-year revenues to fall by up to 3 per cent, including "more pronounced semiconductor headwinds" that will "accelerate modestly" in the second quarter of 2023.

US-based DuPont de Nemours reported that its electronics and industrial sales fell by 16 per cent in the first quarter of 2023 due to "lower semiconductor plant utilisation as a result of weak end-market demand and channel inventory build-up". For the remainder of the year, it expects "utilisation rates to bottom out in the near term and improve in the third quarter".

Apple, on the other hand, reported a 3% year-on-year decline in revenue for the three months to 1 April 2023, with Mac and iPad sales down 31% and 13% respectively. The company cited "macroeconomic issues" and new product launches a year ago as drags. Apple doesn't expect results to improve, saying that "year-over-year revenue performance in the June quarter was similar to the March quarter".

Among other things, iPhone sales improved, which put Apple's total sales ahead of analysts' expectations. "Supply was not an issue in the second quarter", the company said. After the "parade of horribles" in the electronics supply chain over the past three years, the company "will continue to invest everywhere".

Apple supplier Wistron Corporation is reportedly selling one of its factories in India. The company has been producing Apple's iPhones for the local market at the factory since 2018.

Quanta Computer, on the other hand, will begin OEM production of Apple's MacBooks in Vietnam's Nam Dinh province, an unusual move for both Quanta and the personal computer manufacturing industry.

Logitech International S.A., a maker of computer peripherals, said that "supply chain issues seem to be a thing of the past." Nonetheless, it expects revenue for the next six months to be "down about 22 per cent to 18 per cent" from a year earlier as its corporate customers "spend more conservatively".